Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2024 HII Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Please be advised that today's conference is being recorded. If you need further assistance, please press star, put it by zero. I would now like to hand the call over to Christy Thomas, Vice President of Investor Relations. Mrs. Thomas, you may begin.

Thank you, Operator, and good morning, everyone. Welcome to the HII Fourth Quarter 2024 conference call. Matters discussed on today's call that constitute forward-looking statements, including our estimates regarding the company's outlook, involve risks and uncertainties and reflect the company's judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today's press release and the company's SEC filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website at ir.hii.com. On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Seeley, Executive Vice President and Chief Financial Officer. I will now turn the call over to Chris.

Thanks, Christy. Good morning, everyone. And thank you for joining us on our fourth quarter 2024 earnings call. Last year, HII employees remained steadfast in their commitment to our mission of delivering the world's most powerful ships and all domain solutions in service of the nation. I thank them for these efforts, which contributed to HII reaching critical milestones last year. We remain focused on meeting our commitments to the Navy and all our customers. Before I discuss the 2024 results, operational initiatives, and guidance, I would like to put in context where we are and give you a perspective on the next 24 months, as well as the mid- to long-term outlook. Over the next 24 months, we expect to secure over $50 billion of contract awards. These contracts are being and will be negotiated with current performance and economic conditions in our estimates. They are expected to have a more balanced risk equation, be predictable in cost and schedules for our customers, and provide an opportunity to achieve margins more consistent with historical norms. At the same time, we are achieving key milestones on shifts contracted prior to COVID, and as our progress continues, these contracts are becoming an increasingly smaller portion of our portfolio and less of a drag on our financial results. By 2027, the majority of pre-COVID contracts will be behind us. In addition, our focus on increasing throughput and cost reductions are expected to lead to improved operational execution across the business. With these operational initiatives and the significant demand for our products and services, we expect improved financial performance over the mid to long term. We anticipate growing to $15 billion of annual revenue by 2030 with associated margin expansion opportunity and free cash flow growth now turning to our 2024 results we generated sales of 11.5 billion and earnings per share of 13.96 all three of our divisions hit key milestones and won significant new business during the year 2024 awards totaled 12 billion and our year-end backlog was 49 billion of which 27 billion is funded now i'll provide some highlights from each of our divisions first mission technologies had another strong year it achieved awards of more than 12 billion in potential total contract value a 2024 book to build of 1.33 and 9 revenue growth year over year this positive performance reflects mission technologies continued alignment with our countries and our allies national security strategies. For example, in 2024, Mission Technologies achieved its largest win ever, a $6.7 billion contract to provide electronic warfare engineering and technical services support for the U.S. Air Force, as well as a $3 billion Logix task order to provide logistic services, ISR operations, and next-gen technology. And in Australia, Mission Technologies was awarded an initial five-year contract to provide global supply chain services to the Australian Government's Department of Defense. In summary, the Mission Technologies team is executing well and we are confident in its ongoing success, particularly given how closely its portfolio maps to our defense customers' needs. In 2024, at Ingalls Shipbuilding, we were awarded a $9.6 billion multi-ship procurement contract for the construction of LPD 33, 34, and 35 and large deck amphibious ship LHA 10, which secures amphib production backlog well into the next decade. Also, we delivered LPD 29 USS Richard and McCool Jr. and launched LPD 30 Harrisburg, and we continued to make progress on the DDG program with six destroyers in production, authenticating the keel of DDG-133 SAM Nunn in the fourth quarter. Finally, we completed dry dock work and undocked USS Zumwalt DDG-1000 in December. In 2024 at Newport News Shipbuilding in the Virginia-class submarine program, we floated off SSN-798 Massachusetts, delivered SSN-796 USS New Jersey, shipped the final module of SSN-801 Utah, and in December, we christened SSN-800 Arkansas. As for aircraft carriers, we completed dry dock work for the RCOH of CVN-74, USS John C. Stennis, and were awarded the advanced planning contract for the RCOH of CVN-75, USS Harry S. Truman. Also, 94% of CVN-79 Kennedy compartments have been turned over to the Navy. and all combat systems have been turned over to the test team. And CVN-80 Enterprise was moved for the first time, enabling construction of two aircraft carriers at once in the same dry dock. Looking ahead to 2025, at Ingalls, we expect to launch DDG-129, Jeremiah Denton, and complete sea trials for DDG-1000. And at Newport News, we plan to deliver SSN-798 and float off SSN-800. Also, the team is focused on completing CVN 79. CVN 79 is scheduled to deliver in 2025, and the program team is evaluating options for optimizing combat capability additions and readiness for Navy workups. In 2026, we expect to deliver DDG 128 Ted Stevens and LHA 8 Bougainville at Ingalls. And at Newport News, we expect to deliver SSN 800 and lay the keel for CBN 81, Dorey Miller. In 2025, we are also doubling down on operational improvement actions to address the residual COVID-related labor, productivity, and supply chain challenges that we've been facing. Starting with labor and enhancing throughput, in 2024, we exceeded our hiring goal of over 6,000 craft personnel, but attrition remains stubbornly high. Our data shows that additional investment in wages, in coordination with our Navy partner, will provide needed workforce stability. These increases also allow us to attract highly skilled first-class shipbuilders and the proficiency they bring. Additionally, we continue to deploy our enterprise operating system across all our shipbuilding programs to ensure consistency. On labor and throughput, we have acquired the assets of an existing advanced metal fabricator, W International, in Charleston, South Carolina. This acquisition increased our workforce by approximately 500 highly trained personnel. And we plan by 2027 to increase employment significantly at this site, a 480,000 square foot facility. HII Charleston Operations is already working on aircraft carrier units for Newport News, and in the next few weeks we expect to start submarine unit construction. Similarly, we plan to increase our outsourcing by 30% in 2025 and insource contract labor to address critical skill gaps within our shipyards. As a result of these workforce strategies, we expect to achieve a 20% year-over-year improvement in shipbuilding production throughput. Our second operational initiative is an annualized enterprise-wide cost reduction target of approximately $250 million per year. Several actions have already been taken to achieve this target, including the realignment of mission technology segment from six business units to four and the implementation of a new payroll system at the beginning of 2025. Further cost efficiency plans around optimizing cost structures, decreasing overhead and service and support costs, and reducing third-party services are under development and are expected to be executed throughout 2025. Our third operational initiative for 2025 is ensuring our new contract awards reflect the current economic and production environment. Regarding the FY24 Block 5 Submarine Contract Agreement, negotiations are continuing and And we continue to be confident that an agreement will be reached, although we do not have certainty today on the timing of that agreement. These three items, meeting our throughput improvement goals, executing our cost reductions, and achieving new contract awards that reflect the current economic and production environment, underpin our guidance and are expected to bring more predictability to our contract cost estimates, delivery schedules, financial performance, and guidance. In terms of our financial outlook, more specifically for 2025, we expect shipbuilding revenues between 8.9 and 9.1 billion, and shipbuilding margins in the range of 5.5 to 6.5%. For mission technologies, we expect revenues between 2.9 and 3.1 billion, and margins between 4 and 4.5%, with EBITDA margins between 8 and 8.5%. done. Our free cash flow outlook for 2025 is between 300 and 500 million. The 2025 shipbuilding margin of free cash flow outlook is predicated on meeting our throughput and cost reduction objectives. It also assumes appropriate resolution on the last two VCS Block 5 boats and the Block 6 and Columbia Bill 2 contracts consistent with the continuing resolution anomaly language passage that was passed by Congress. Turning to activities in Washington for a moment, we are pleased with the passage and enactment of the Defense Authorization Act for fiscal year 2025. The FY25 NDAA strongly supports our shipbuilding programs. In addition to authorizing funding for three Arleigh Burke-class surface combatants, one Virginia-class submarine and one San Antonio-class amphibious warship, the NDAA authorizes the refueling and overhaul CVN 75, additional incremental funding for the second Virginia class attack submarine in FY25, and continued support for Gerald R. Ford class aircraft carriers and the LHA and LPD amphibious warship bundle. The NDIA also recommends the Navy optimize aircraft carrier acquisition strategy and procure CVN 82 in FY28. We applaud Congress for including anomalies in the CR that provide additional support for nuclear-powered vessel programs, and we look forward to Congress finalizing FY25 appropriation bills. In summary, we continue to make progress on our programs with impactful operational initiatives that we believe will lead to meaningful improvements in productivity and throughput. Demand for our products and services is strong, and we continue our focus on executing for our key customer, the U.S. Navy, with five deliveries over the next two years. We have a line of sight for generating approximately $15 billion in annual revenue by decade's end, with incrementally improving operating margins over that period, which will facilitate improved results for all stakeholders. So with that, I will turn the call over to Tom for some remarks on our financial results and guidance. Thanks, Chris, and good morning.

Today, I'll review our fourth quarter and full-year results and also provide some additional color regarding Outlook for 2025. For more detail on the segment results, please refer to the earnings release issued this morning and post it to our website. Beginning with our consolidated fourth quarter results in slide six, our fourth quarter revenues of $3 billion decreased approximately 5% compared to the same period last year. This decline was driven by lower year-over-year revenue at all three segments. Ingalls revenues of $736 million decreased to $64 million, or 8%, compared to the fourth quarter of 2023, driven primarily by lower volumes on amphibious assault ships, partially offset by higher surface patent revenues. At Newport News, revenues of $1.6 billion declined 77 million, or 4.6%, from the fourth quarter of 2023, primarily due to lower RCOH volumes, unfavorable cumulative adjustments on the Virginia-class and aircraft carrier construction programs, partially offset by higher Columbia-class volumes. At Mission Technologies, fourth quarter 2024 revenues of $713 million decreased to $32 million, or 4.3 percent, from the fourth quarter of 2023, primarily driven by lower volumes in C5ISR due to non-recurring product revenue in the fourth quarter of 2023. Moving to slide seven, segment operating income for the quarter was $103 million, and segment operating margin was 3.4 percent. This compares to $330 million and 10.4 percent, respectively, in the fourth quarter of 2023. Fourth quarter 2023 results included two non-recurring favorable items that make for a difficult year-over-year comparison. The first item was a $70.5 million sale of a court judgment at Ingalls. The second was a $49.5 million insurance claim settlement at Mission Technologies. Ingalls' operating income of $46 million and margin of 6.3 percent compares to $169 million and 21.1 percent, respectively, in the fourth quarter of 2023. The prior year period included both the favorable sale of a court judgment that I noted, as well as a surface combatant-related contract incentive. Newport News' fourth quarter 2024 operating income of $38 million and margin of 2.4 percent compares to $110 million and 6.6 percent, respectively, in the fourth quarter of 2023. The declines were driven by lower performance on Virginia-class submarine and new carrier construction, partially offset by contract incentives on the Columbia-class program. Shipbuilding margin for the fourth quarter of 2024 was 3.6 percent. Mission Technology's fourth-quarter operating income of $19 million and segment operating margin of 2.7 percent compared to $51 million and 6.8 percent, respectively, in the fourth quarter of 2023. The declines were primarily driven by favorable insurance claim settlement that occurred in the fourth quarter of 2023. Net earnings in the quarter were $123 million compared to $274 million in the fourth quarter of last year. Diluted earnings per share in the quarter were $3.15, compared to $6.90 in the fourth quarter of the previous year. Moving on to consolidated results for 2024 in slide 8, revenues of $11.5 billion increased $81 million, or approximately 1% compared to 2023. Growth was driven primarily by higher volumes at Mission Technologies, partially offset by lower volumes at Newport News Shipbuilding. Ingalls' revenues of $2.8 billion in 2024 increased $15 million, or half a percent from 2023, driven primarily by higher volumes than surface combatants, largely offset by lower amphibious assault ship and NSC program revenues. At Newport News, 2024 revenue of $6 billion decreased by $164 million, or 2.7 percent from 2023, primarily due to unfavorable Virginia-class cumulative adjustments, as well as lower volumes in aircraft carriers and nuclear support services, partially offset by higher volume on the Columbia program. At Mission Technologies, 2024 revenues of $2.9 billion increased $238 million, or 8.8% from 2023, primarily driven by higher volumes in cyber, electronic warfare, and space, as well as C-5 ISR contracts. Moving to slide nine, segment operating income for the year was $573 million, and segment operating margin was 5%. This compares to $842 million and 7.4% respectively in 2023. Ingalls operating income of $211 million and margin of 7.6% in 2024 compares to $362 million and 13.2% respectively in 2023. The declines were primarily driven by the sale of the court judgment in 2023, as well as lower performance on amphibious assault ships and surface combatants. Newport News 2024 operating income was $246 million and margin of 4.1 percent compared to $379 million and 6.2 percent, respectively, in 2023. The decreases were primarily driven by lower Virginia-class and aircraft carry performance, partially offset by Columbia-class contract incentives. Shipbuilding margin for 2024 was 5.2%, within the revised guidance range we provided for the year. Net cumulative adjustments for the year were negative $126 million. Newport News' net cumulative adjustment was negative $154 million, partially offset by positive net cumulative adjustments at both Ingalls and Mission Technologies of approximately $14 million. Mission Technologies' 2024 operating income of $116 million and segment operating margin of 3.9 percent, both improved from $101 million and 3.7 percent, respectively, in 2023. The improvement was driven primarily by volume and performance in cyber, electronic warfare, and space contracts, stronger performance in fleet sustainment, as well as higher equity income. Again, the Mission Technologies 2023 results included a favorable $49.5 million insurance claim. So we are lapping that difficult comparison, and we believe our results still show strong absolute income growth and margin expansion for the year. Mission Technology's 2024 results included approximately $99 million of amortization to purchase intangible assets, compared to approximately $109 million in 2023. Mission Technology's EBITDA margin for 2024 was 7.9%. Company net earnings in 2024 were $550 million, compared to $681 million in 2023. The looted earnings per share in 2024 were $13.96, compared to $17.07 in 2023. Turning to cash and capital deployment on slide 10, 2024 free cash flow was $40 million, consistent with our most recent guidance and reflecting factors previously discussed. During the year, the company invested $353 million in capital expenditures, or 3.1% of sales, as we continue to prioritize higher throughput in our shipyards. We pay $206 million in dividends while ending 2024 with $831 million in cash and cash equivalents on hand and liquidity of approximately $2.5 billion. Cash contributions to our pension and other post-retirement benefit plans totaled $47 million in 2024. Our pension outlook for 2025 has modestly improved from the update that we provided in November, giving this increase in discount rates partially offset by 2024 asset returns that was slightly below our expectations. Actual asset returns for 2024 were 7.7%. Our five-year pension outlook has been updated and is available in the appendix of today's presentation on slide 13. Turning to slide 11 and our financial outlook, first, we are reaffirming our medium to long-term growth targets for both shipbuilding and mission technologies. As Chris noted, we see a clear path to $15 billion in annual revenue by the end of the decade, given our robust backlog and very strong demand across the portfolio. Regarding 2025 expectations, Chris provided our operational guidance, but let me provide a bit more color on our cash flow outlook. We expect 2025 free cash flow of between $300 and $500 million. Performance on contracts entered into prior to the commencement of the COVID pandemic has impacted our ability to achieve program milestones and corresponding cash receipts. We expect this headwind will continue in 2025, which, along with elevated capital expenditures and cash taxes is impacting our overall cash generation. We expect 2025 capital expenditures to be approximately 4% of sales as we continue to thoughtfully invest in increasing our shipbuilding efficiency and throughput. Additionally, we expect our 2025 cash taxes will total approximately $220 million. Regarding our expectations for the first quarter in 2025, We expect approximately $2.1 billion for shipbuilding revenues and $680 million of Mission Technologies revenues, with shipbuilding margin near 5.5 percent and Mission Technologies operating margin approximately 3 percent. Consistent with normal cash flow cadence, we expect first quarter free cash flow to be negative, representing a use of between $300 and $500 million, and as working capital continues to build through mid-year before we are able to reach program milestones and contract awards. Turning for a moment to capital allocation, as we have highlighted today, we will continue to invest in our business to maintain and grow the capacity of our shipyards. Our approach to dividends and returning excess cash to shareholders remains unchanged. Our focus now, of course, is working through challenged contracts and returning free cash flow to more normalized levels. To close my remarks, achieving the throughput, cost reduction, and contract award initiatives that we have outlined are critical to stabilizing shipbuilding performance in 2025 and achieving the outlook we have provided. Similar to 2024, we expect that about 70% of the shipbuilding revenue generated in 2025 will be derived from pre-COVID contracts. We forecast approximately 60% of 2026 shipbuilding revenue will be derived from pre-COVID contracts. Finally, we expect that in 2027, a majority of the shipbuilding revenue will be derived from contracts that reflect the current operating environment, and we will set the foundation for margin improvement and returns towards historical margin levels. With that, I'll turn the call back over to Christy for Q&A.

Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up so we can get as many people through the queue as possible. Operator, I will turn it over to you to manage the Q&A.

Thank you very much. If you would like to ask a question, please press star, put it by one, on your telephone keypad now. Please ensure your device is unmuted locally. If you change your mind or your question has already been answered, please press star followed by two. Our first question comes from Doug Harned with Bernstein. Doug, your line is now open. Please go ahead.

Very good.

Good morning, Doug. Sorry for the background noise. We're going through a thunderstorm outside right now, but just bear with us a little bit.

Okay. I've got a snowstorm here, too. So if I go back a few years, there was a margin outlook that had always been talked about in the 9% to 10% level. And knowing that, I mean, the CPI is hardly a good indicator for inflation for you all. But can you give us a sense first, when you look at the margin gap that you have now, how much of that would you attribute to inflation versus other operational challenges if you're looking back at that 9% to 10% type projected level?

Yeah, so that's a very interesting question, and I don't have a specific number for you. Doug, we do have some EPA protection and inflation protection on our Ingalls contracts and limited EPA protection on material. It's not just directly inflation that impacts you. It's a little bit more nefarious than that because you have inflation that adjusts very quickly on some products and services that can be passed along very quickly to a customer where we have long-term contracts that we have to perform against the baseline that was negotiated where you really can't adjust as quickly, which leads to less experienced workforce and performance challenges. So I hate to say that – I hate to not give you a number related to that, but it's a broader question than just a calculation of the inflation impact as related to that is in the supply chain it's even if we have protection for it they're just the performance of the supply chain because of inflation is is not as efficient it's a very broad answer I apologize for not giving you a precise answer but inflation kind of seeps into various elements of our cost structure not just pay people more.

Well, just to follow on that, if you look outside of shipbuilding, the Pentagon has frankly not been very helpful at all in providing equitable price adjustments, and that's across many types of programs. And even though you have some, you know, you've been facing a lot of the same problem. And everyone, I think there's universal acceptance of the importance of the Virginia class, the Columbia class, but when you're negotiating new contracts now in what has been a tough funding environment, do you still see it as possible to get back to those 9% to 10% type margin levels that have been more traditional, or are we living in a different world now where you may have to sort of give in, in a sense to lower financial performance well yeah yeah interesting i absolutely believe that nine percent um is is the uh is possible moving forward the 50 billion dollars of contracts that um you

know we've negotiated some of those with uh the bundle the anfib bundle down in in mississippi and we're negotiating the FY24 Block 5-2 boat contract now, the customer's been very receptive to understanding the current economic environment. We will get inflation protection in those new contracts. I think you saw Congress put the additional $5.7 billion in the anomaly for those FY24 boats. There's a recognition that we need to rebuild this industrial base, and there's also a recognition, I believe, that shipbuilders need to earn fair margins. And so we're taking that to the table, and we're going to make sure that that happens. But I absolutely believe that 9% is something that we can achieve. And the reason I believe it, Doug, is simply because I've done it before. Down at Ingalls, we're in the exact same position. and we had to negotiate performance post-Katrina into the new data set of ships. We got that done, and they had a very good run where there was predictable cost and schedule performance because, ultimately, it doesn't do anybody any favor to agree to cost estimates or schedules that are unrealistic. So we're going to make sure that that happens. I think the customer is on board with that. They want realistic, achievable schedules as well, and so I firmly believe that's going to happen.

Okay. Very good.

Thanks, Doug.

Our next question comes from Seth Siefman with JPMorgan. Seth, your line is now open. Please go ahead.

Hey. Thanks very much. Good morning. I wanted to ask about… Good morning. In the prepared remarks, I think, you know, you talked about the guidance, what underpins the guidance, I think, that expects more predictability. Are you basically, what contract awards are you assuming that the company will get this year in the guidance?

Yeah, the submarine contracts, the 17 boats contemplated by FY24. Right, okay.

This is basically the full, yeah, the full-laws kind of plan that you've been advocating is assumed in this. Well, it's not.

No, let me correct you there. It's not a full-solid plan. We're negotiating FY24 two boats consistent with the acquisition approach that was set forth by Congress and supported by the anomaly. Block 6 and Columbia Bill 2, we're going to have to see the acquisition approach for those boats as they develop. SAWS, or a derivative of SAWS, is positive. Anything that brings additional investment into the industrial base that accelerates shipbuilding production is positive, but we're going to take this one step at a time.

So the guidance doesn't assume the 17 boats get under contract?

It does. It assumes FY24-2 boats and then assumes the negotiation of the block contract and the Columbia Bill 2 contract, yes.

Okay, okay. And do you, I guess, what gives you, have you had communications with the new administration? What kind of gives you confidence that that's going to happen during this year?

Yeah, so interesting. I have high confidence in the FY24-2 boats. That'll happen first part of the year. I have had limited conversations with elements of the new administration, and they've assured me that shipbuilding is one of their top priorities. That's welcome. That makes perfect sense based upon the threat environment. So I believe we'll step right into Block 6 after we negotiate the last two Block 5 boats.

Thanks.

I'll leave it there for now. sure thank you very much our next question comes from scott mickus with melius research scott your line is now open please go ahead good morning chris i kind of want to follow morning answer to the question when i think about post katrina northrop had a lot of struggles with a chip building business before spinning it off to form hai shipbuilding margins initially weren't that great post-spin. But come 2013, there was a meaningful pickup and favorable EAC adjustments and your stock more than doubled that year. So just curious, what lessons did you learn from the late 2000s and early 2010s that are still relevant and can be applied today? And when do you think investors will see EACs flip from unfavorable to favorable?

Thank you. I'll start this answer then i'll kick it over to tom for some um some timing related issues but i have confidence that we can get this done because i've done it before as you said and the key is making sure that you're very transparent and disclose current performance and ensure that you're resolute at the negotiation table and there's achievable and predictable cost and schedule estimates when you do those negotiations. As I said previously, it doesn't do anybody any favors to miss schedules or miss cost estimates. So we just need to make sure that we estimate them correctly and negotiate them correctly. And that can be done. And there's $50 billion of work that's going to be negotiated here. It's just getting through the pre-COVID contracts is what's important. So I'll let Tom talk about the timing a little bit.

Thanks, Chris. We're down there. I spent making sure, one, we get good contracts and have a good cost equilibrium balance between us and our customer. We've been hit now with COVID and inflation and things of that nature. These long-term contracts are being impacted by inflation, the number of heads, the experience in the yard, and the supportability of the material right now. So, one, it's any of the new awards we get, like the bundle down in Ingalls that we have, the FY23 award for destroyers that we received, And now going forward, the plethora of 17 boats between the VCS 5, 6, and Columbia Bill 2. You know, getting balanced contracts appropriately aligned, our schedules that we see right now are rolled in. The investments, both from ourselves and from our Navy partner, will have a positive benefit. But in strong, we have a solid track. And then, obviously, it's maintaining our budgets, holding schedules, making progress weekly, monthly, quarterly. And we have a track record of doing that. I'm confident we have the – for the most part, we need more throughput, but the processes and the tools and the facilities are in place right now. Bring out the workforce we did down at Ingalls. I think we have the pieces in place and where we are short on people, the cost reduction initiatives that we have right now, and we've talked about the contracts, contract equity going forward here. I think we understand what's causing us a delay in our production programs, specifically on VCS and some headwinds they have down at Ingalls on the destroy program and I think we're working hard putting the dollars and the pressure in the right areas to find the rhythm that we saw on the Ingalls march up.

So we don't have a sitting over the next couple years into the new contracts and as we transition there should be an uplift in profit.

Okay and then one quick follow-up the midpoint of the guidance implies about five hundred more five hundred forty million of shipbuilding operating income I'm just curious is there any assumption baked in there for what net EACs will be for this year yeah so obviously we run our EAC process on a quarterly basis we don't provide you know the profitability by ship or by class like that even by division so we are always baking in EAC and the estimates to complete in the EAC is aligned with our performance that we have right now with risks and opportunities kind of hedged against that right so we know we're throwing additional investment dollars in it and efforts and improvements of our production lines we balance that with the risks and opportunities we see in front of us so that sets the trajectory and how we expect to perform kind of going forward and again that etc estimate to complete on these vacs gets re-evaluated on every 90 days when we get another set of actuals but you know we do expect a stabilization and an improvement as we go forward okay got it thanks for taking any questions.

Thank you. Our next question is from Pete Skibitsky with Alembic Olympic Global. Pete, your line is now open. Please go ahead.

I guess just sticking to the shipbuilding margin questions, it sounds like maybe you'd recommend, we assume, sort of gradual improvements on shipbuilding margin through kind of to the end of the decade, maybe hitting that 9% mark. And And I don't know if we should think about a step change improvement in 27 or just keeping it gradual. And then I just wonder if you could talk about the – it sounds like you could potentially get a contract change on CBN 79. I wasn't sure if he did get a contract change, if that would impact margin one way or another. Thanks.

Yeah, so let me start, and I'll let Tom chip in. Let me ask the 79 question first, and then I'll – 79, yes. we do expect a contract change related to some additional capabilities that may be put in the ship. The program team's working on that and with the objective of getting the ship delivered with the most capability and deployed as soon as possible. The program teams are working on that and there would be a change related to that, but I don't think it's positive or negative. It's just an equitable adjustment related to the capabilities that are at.

With that, I'll send it over to Tom on the margin timing yeah so specifically obviously we don't provide a margin guidance for the following year or the out years obviously there is a shape and an expectation we have right here and you know as of Q3 last last year we missed the expectation of where we thought we were you really got to get down to where we've been impacted and again it's that it's a less experience the labor we have the throughput and the support of supply chain we see areas and we have initiatives to kind of improve all of that so so going forward that's going to be a lift against all operations we have. Now, for contracts that have run through COVID, you know, the older pre-COVID contracts, those contracts have seen increased costs. So there's limited ability to go and get additional profitability on those contracts. As we put the new work, the $50 billion on here, obviously that didn't run through that. It's going to get the benefit of the current performance and where we stand right now. And the opportunity is much greater my remarks i gave you the mix on how it blends out and by the majority of the work will be postcode work and um i do expect a ramp in profitability as we work ourselves through the decade here but always remember we're pretty conservative and we start out ships so um i do agree it's going to uh it's going to increase but okay thanks for the color guys yeah our next

question is from David Strauss with Barclays. David, your line is now open. Please go ahead.

Thanks. Good morning.

Hey, Chris, could you maybe talk about the opportunity to buy additional shipyard capacity? I think you've made some comments recently in the press around that. Can you kind of size that opportunity?

And if I miss, I apologize on the call or in your prepare remarks what are your hiring plans in 2025 relative to 2024 yeah so we'll we'll hire about the same amount we've repositioned our hiring a bit as I said in a previous earnings call from kind of broadly hiring including entry level to hiring more experienced people we've actually made some progress in that regard. And specifically in Newport News, we had been hiring out of the pipeline, which is really the regional development centers. These are people that have chosen shipbuilding as a career. They've been at a 5% to 10% rate. That's increased to 35% at the back half of the year, which is really positive. And we would like it to get to 60% this year. And that's really thanks to the state of Virginia and the federal government for increasing the funding for those regional development centers we're also targeting additional experience down at ingles where they'd like to hire 80 uh experienced uh people so while the number's the same we would we're repositioning it um repositioning a bit now your question about buying another shipyard i'm really not interested in that uh w international was was an opportunity that came along, and they're a quality builder or manufacturer that has been in the shipbuilding industry, and we were concerned they were going to move out of the shipbuilding industry, and that is a problem. So we have a lot of outsourced partners, and I'd rather develop outsourced partners and have an arms-like relationship. I really don't want to vertically integrate, but this opportunity showed up, and we got 500 world-class shipbuilders with Newport News management team managing them. So this really was really a layup for us. It's going to increase our throughput immediately. But I have no plans to right now, unless something very interesting came along, to buy additional manufacturing facilities.

Okay, thanks. And Tom, a follow-up on free cash flow and capital deployment. In terms of your free cash flow progression beyond this year, I think about 26, 27 as the pre-COVID work runs off, would you expect a free cash flow progression given the CapEx and working capital investments you've had to make here? Would you expect that free cash flow progression back to normal to maybe be faster relative to kind of what we're going to see in terms of the runoff of the pre-COVID work? And then just how you're thinking about capital deployment, given the cash burn in Q1 and the debt maturity in, I think, the beginning of Q2.

Yeah, so I would expect, you know, as we work through, as Chris said, the chop in the water for the next 12 to 18 months, the cash flow would ramp up, you know, and we would get back to more normalized levels as we have here. And you can time that, as well as with the margin, the cash flow will follow that in the out year. So that's how that works. From the capital deployment, there's no change. We're still using the same process and the model that we have here. We'll continue to have a – we'll invest in the yards. We'll have a dividend that we have annually here. And any excess free cash flow, which we've been doing since 2011, we'll go back to the shareholders as that materializes. So no change in that policy right now. We did not provide any guidance for 2025. And if something changes in that front, we'll update you on a quarterly earning.

You know, I would add, it's an interesting question on projecting free cash flow right now. This previously, I don't know if it's been picked up, but the incentive-laden nature of some of these that are being let really lend itself to be difficult to project. It's always been a challenge for us to project free cash flow timing because of the limited amount of projects, large invoices can move across the period. But with these large incentives and the timing of these incentives, and some of them not even being negotiated yet, it makes it a bit of a challenge. So we're going to continue to be lumpy going forward, but I agree with Tom, 100% it should incrementally improve.

Thanks very much.

Our next question comes from Scott Deutschler with Deutsche Bank. Scott, your line is now open. Please go ahead.

Thanks. Tom, were the Virginia-class negative EACs on the Block 4 boats, the Block 5 boats, or both?

A mix of both.

And I think the Block 5 boats are post-COVID boats, so why should we only be focused on the pre-COVID ship? No, they were negotiated in 2019.

I'm sorry. Those were negotiated in 2019. Yeah, they were in 2019.

I think, Chris, would the contract change on CVN-79 result in the change in the delivery timeline for that ship?

Potentially. We're working through that with the CUP.

Can you remind me why the ship was originally delayed from 2024 to 2025? I thought it was something similar to what you're now saying may cause it to go into... Well, there's a CUP.

Yeah, no. So sorry for the confusion. There's actually a couple changes, large changes that took place on CVN-79. The first one was related to some significant combat system work that the Navy asked us to do. I think what you're referring to is moving PSA into the baseline work. That was the schedule change previously where we were going to deliver it, do a significant amount of PSA work, and then get it deployed. They moved that into the baseline, which caused a schedule change. This is additional capability that they've developed based on CVN-78's performance in deployment. And so you always want to get that as you learn. This is the second ship of the class. As you learn, you want to make sure that all the capabilities are in that ship.

And did you book a negative EAC on CVN-79 this quarter? Thanks, guys. I'll leave it there.

Our next question comes from Miles Walton with Wolf Research. Miles, your line is now open. Please go ahead.

Thanks. Good morning. I was curious on the shipbuilding margin. The shipbuilding margin guidance for 25, 5.5 to 6.5. In the first quarter, you're already at 5.5. But I think the full year is predicated on material increases in throughput and cost reduction, as well as the contract award assumptions.

So the question is, how much are you assuming is going to happen in the booking rate versus when those things happen, the margins will progress higher yeah so all of that is included in the uh in the guide right the new ships um meeting our reduction initiatives um the timing of the new ships an incentive assumption on those new ships so it's kind of all in the mix uh and then it's a bit of a conservative guide related to um we've just been had a couple quarters of negative adjustments here so we thought

was prudent to uh to make it a bit a bit conservative so um it's all in the mix uh i'd like to say i could time it uh out for you we'll give you the information every quarter on how we think the next quarter is going to be but all of that factors into the guide i guess the way i was going at is first quarter you obviously wouldn't have the contract you wouldn't have a lot of these cost improvements so that five and a half percent is that low end pretty much reflective of your of your current situation, ignoring the improvements you're talking about on throughput and cost improvements.

I think that's probably fair, but we're working hard to get that contract.

We give the court a guide, so obviously there's the timing of the new contract award. There's the list that we expect to get from the initiatives that we have on the objectives page, the operational objectives page. But then there's just the run rate opportunities and risks that we see for performance, the CPIs and SPIs. It's in the mix there, beginning of the year, but they'll be bite, hopefully they'll be bite against the contract awards, the initiatives we have, and then as the programs mature, the medium of the top end of it.

And then, Chris, maybe a higher level question. This move towards outsourcing, obviously there's benefits to that. You could maybe control your cost or have a little bit more visibility on cost, but you're relinquishing some control and quality control in particular. How do you weigh that and a move to increase it as much as you're talking about 35 percent? I don't know what the base level is, so it could be a material number or it could be an immaterial number.

Yeah, it's a material number. And the good news is we're outsourcing with partners that we already do outsource work with, so we're very familiar with them. We don't do this lightly. We do pilot projects so that the partners can demonstrate their quality capability before we do it.

So it's a good question because we've been burned by outsourcing before. think a lot of people in the industry have and we just need to make sure we do it right so um it's a fair it's a risk uh that we understand and we mitigate because we've done it before back of that like an acquisition like like w international bringing it in-house with new put news people leadership processes throughput a proven workforce that's there that was up and running you know there's work going on that down there right now and you know having 500 heads ready and moving forward operationally is a big plus there. So we're doing it really smartly. We're ensuring who we the bump is around to make sure we get the performance and expectations. And we anticipate that, you know, we'll be able to execute that work and be a significant piece of the lift that we talk about, about 20% more earned throughput.

Thank you.

Our next question is from Ron Epstein with Bank of America. Ron, your line is now open. Please go ahead.

Hey, good morning. This is Jordan on for Ron. Hey, good morning, Jordan. Good morning. On the initiatives that you guys are working on for hiring, what's changed versus what you guys have been doing for the past couple of years? And also, too, how do you think HII and Mission Tech specifically, too, is there any impact from Doge?

Okay. So, first, what changed is I previously spoke about it's not only hiring, we've refocused that to target more experienced shipbuilders. Wages are going to help that. The anomaly has workforce development support, and so that will help that process to hire more experienced shipbuilders and will assist in retention as well. So DOGE is, you know, it's the new administration. It's good that one of their top priorities is shipbuilding for reduced regulation. We'll work with that team to ensure that we have the appropriate level of regulations. And trust me, no one wants less cost and better delivery schedules than I do. So we welcome the initiatives that could be put in place, and we would participate in that.

Great. Thank you.

Thank you.

Our next question comes from Gautam Tana with PD Cohen. Gautam, your line is now open. Please go ahead.

Hey, good morning, guys.

Morning, Gautam.

So I have two questions. One, previously you guys had thought about a cash inflow associated with signing the 17 submarine contracts. i think it was a release of contract assets you're receivable is that still true and if you could quantify how how much would be really you know could be invoiced upon signing that and i had a follow-up yeah there is there is some cash upside to executing those contracts you know there we risk adjust all of that and we so we haven't broken that out got them um but but um that's included in our guide and there's a there will be some cash receipts related to a quarter ago

a lot of the free cash reduction was in the guidance for 2024 was that those contracts moving out the signing so is it about 500 million and can you ballpark it for us i'd really rather not got them at this point there's a lot of moving parts in the cash guide as tom mentioned previously but yeah I'd really rather not ballpark that but we're still in discussions with the with the government on that contract and we need to negotiate that really holistically so I'd rather not give you I'll probably just like a little color there because I think as your reference back to the Q3 call

your questions kind of getting your head around hey that was that near the back half the year that the omnibus approach for 17 subs being put on to still make our guide last year right and we had the early question on saws right now so although that's viable and that's still out there and the industry still believes that's a very efficient way to get the most ships on kite right now as you know the CR just has and we're working very closely with a Navy partner to get those on contract near term so the difference between where we were say last quarter and this quarter is just the contracting approach the mechanisms it is an omnibus at all 17 which it would impact additional contracts or is it just too incremental approach which maybe saw still an opportunity set behind it but um it brings just a little bit of an uncertainty of what was the cash perspective and outlook back in q3 versus how we're going forward here all these boats will get on contract right we'll find a good risky equilibrium between us and our navy partner right and a balance between affordability and profitability and we'll ensure that the deal on our side obviously meets the requirements and the expectations of our customer while being true to thanks tom and just one last one

In President Trump's first term, we all remember the whole FSA discussion going to more unmanned, lighter ships. Is there any movement afoot? Have you heard anything from the new administration about their inclinations to revisit some of the recommendations back then?

Not yet, but it's early. The leadership is still getting confirmed. You know, we support, obviously, with our unmanned business, we support both. We think there's a high-low argument that's going to have to be executed. But no, we've not had those conversations with the new administration yet because they just aren't there yet.

Thank you, guys.

Thanks, Gowda.

Thank you very much. I'm not showing any further questions at this time. I would now like to hand the call back over to Mr. Kastner for any closing remarks.

All right. Thank you for joining the call today. I appreciate everyone's participation.

That does conclude today's conference call. You may now disconnect.